- The pandemic-driven shift to digital isn’t dissipating, as cash and check’s share of in-store retail and food services transaction value will tick down to 18.5% this year.
- Debit usage will be sustained as the most used payment method in the US, but faces competition from credit and prepaid cards with borrowing on the rise again.
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The pandemic accelerated payments industry digitization, with 2022 marking an inflection point in the way consumers and businesses cement the way they make their purchases. With insights from our annual Payments Ecosystem report, we define and explore the payments industry, evaluating key trends affecting consumers and businesses.
The payment processing industry overview
Digitization has been accelerated across peer-to-peer (P2P), business-to-consumer (B2C), and business-to-business (B2B) transactions beginning in 2020, but the second full year of the pandemic made it clear that they’re here to stay, even as spending levels normalize. Stakeholders that earn fees to help complete these payments—including acquirers and processors, networks, and issuers—are racing to keep up with changes in the way people and companies transact.
Analog payments plunged at the pandemic’s onset, and will continue slowing down this year as debit, credit, and prepaid cards duel for their share of usage. In fact, cash and check’s share of in-store retail and food services transaction value will tick down to 18.5% this year and continue its downturn into 2023, per our forecast.
In response to rapid digitization, merchants need to ensure customers can use their preferred payment method. This, in turn, is putting pressure onto point-of-sale (POS) providers to develop multichannel solutions that meet front- and back-end needs. In all corners of the payments industry, providers are racing to explore new transaction flows, reach new subsets of consumers and businesses, and embrace new devices and transaction technologies.
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Payments industry trends
In-store payment methods
In-store sales will remain the largest retail channel by both share and dollars as shopping habits normalize. From 2022 on, in-store’s share of retail sales will once again contract as customers gravitate toward ecommerce.
Card payments dominate in-store retail. In 2021, for the first time in 16 years, US debit spending surpassed credit as consumers aimed to limit financial risk during the pandemic—growth that’s meant to stabilize this year. According to our forecasts, debit spending will account for nearly 40% of in-store retail and food services dollars. The demand for contactless is also giving rise to alternative and experiential methods, such as proximity payments such as Apple Pay, in-store buy now, pay later (BNPL), and click and collect.
US retail ecommerce sales will exceed $1 trillion for the first time this year, although growth will be distributed unevenly across channels: desktop sales will decelerate through 2025, while mobile purchases boom, accounting for 4 in 10 retail ecommerce dollars for the first time this year. That’s why checkout providers are focusing on optimizing the mobile payments experience, as well as exploring opportunities in social commerce.
The increasing need for brick-and-mortar sellers to migrate online is making gateways more prominent in the payments ecosystem. High-profile players across the industry are acquiring and partnering with gateways that will unify software across in-person and online channels.
The digitization of payments isn’t just contained to retail, though, with real time mobile P2P payments, digital remittances, and digital business payments continuing to blossom as change spreads through the ecosystem.
By 2025, over 7 in 10 smartphone owners will be mobile P2P payment users, with the potential to onboard two untapped audiences: Gen Zers gaining spending power and security-minded consumers who have avoided digital payments due to safety concerns.
Digital remittances are expected to jump 45% between 2021 and 2025, to $428 billion, according to a report from Juniper Research. The success of entrants such as Remitly and Wise (formerly TransferWise) is a sign of a changing market, putting pressure on incumbents to lower fees.
After dipping in 2020, US B2B payments are set for a second consecutive year of growth in 2022, with volume forecast to reach $28.611 trillion. To capitalize on the opportunity, payment providers will deepen their push into the B2B space, catering especially to small businesses—making up a significant share of the US B2B payments market—in search of accessible, affordable solutions.
At the start of the pandemic, credit card spending dipped due to overall spending declines and financial uncertainty. Credit card usage only saw gains pick up again in Q3 2021, gains that are expected to stabilize in 2022 as non-essential purchasing, especially in travel and entertainment, resumes.
For the first time this year, consumers’ lasting embrace of ecommerce will push online credit card usage past $500 billion. However, the payment method’s share of digital retail transactions and card transactions will decrease slightly, partly due to consumers’ rising preference for debit. Issues are set to combat this by releasing new cards with rewards and value propositions such as lower fees, payment flexibility, and financial management tools.
The payments industry explained
For the first time, Insider Intelligence’s annual Payments Ecosystem—a broad-based report catered toward the entire payments industry—will be broken out into four parts, allowing for more detailed-yet-digestible content that more specifically addresses the areas that matter to you:
- Participants in the Payments Purchasing Chain: How Key Players Facilitate Transactions—and How Their Roles Are Changing
- The Point-of-Sale: How Hardware and Software Providers Are Meeting Merchant Demands for Omnichannel, Full-Suite Products
- Payment Methods and Funding Mechanisms: What Shifting Consumer and Business Payment Preferences and Habits Mean for the Industry
- Payment Flows and Transaction Types: How Lasting Digitization Is Reshaping Providers Growth, Revenue, and Competitive Strategies
Each section will examine changing market dynamics and how it will impact stakeholders, as well as identify top trends for 2022, as informed by our in-depth forecasts and proprietary third-party data.
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